Tower Resources plc, the AIM listed Africa focussed oil and gas exploration company, is pleased to announce the completion of the sale of its wholly owned subsidiary, Comet Petroleum Limited, to Red Rio Petroleum Ltd, the privately held oil and gas exploration company.
Red Rio is purchasing Comet for a cash consideration of £1, future contingent payments and an over-riding royalty interest (“ORRI”) of ten per cent over future production revenue from Comet’s assets in the Saharawi Arab Democratic Republic (“SADR”) as set out below. Tower has also completed an amendment agreement to eliminate the previously announced contingent payments due to the original vendors of Comet, who will now share part of the above consideration as further detailed below, leaving an ORRI of between five and ten per cent net to Tower depending on the asset.
The SADR is the democratically elected government of the territory known as Western Sahara, but the sovereignty of the territory remains in dispute with Morocco. As a result, the Company believes that disposing of these assets, whilst retaining an interest in their future development through the ORRI, is in the best interest of shareholders. The carrying value of the assets within the Company’s latest audited accounts for the year ended 31 December 2015 was US$484,362, predominantly reflecting accrued annual licence fees.
Tower announced the acquisition of Comet, which holds a 50% non-operated interest the Guelta and Bojador blocks in the SADR, on 13 June 2008 from the Company’s then Directors, Peter Blakey and Peter Taylor (the “Vendors”). The Company later acquired an interest in the Imlilli block in 2011, increasing its interests to three blocks in the SADR. Peter Taylor continues to be a Director of Tower while Peter Blakey resigned as a Director at the time of the Company’s AGM in April 2016.
The consideration for the 2008 acquisition included terms that upon the entering into of a Production Sharing Agreement or the sale or disposal of the assets, the Vendors would be entitled to a consideration of up to £3 million for the Bojador and Guelta licences. The Company does not consider that the long-term prospect of cash generation from the assets justifies such immediate cash expenditure, and therefore prior to the disposal to Red Rio, the Company has agreed with the Vendors to amend the 2008 Sale and Purchase Agreement (“SPA”). The consideration has therefore been replaced with deferred consideration payments to the Vendors of 50 per cent of any future consideration and royalty income that the Company receives from the Bojador and/or Guleta Licences, reducing the ORRI attributable to Tower from those two licenses to five per cent net.
The amendment to the SPA is deemed to be a related party transaction under the AIM Rules for Companies. The Directors, other than Peter Taylor, consider, having consulted with Peel Hunt LLP, the Company’s Nominated Adviser, that the terms of the amendment are fair and reasonable insofar as the Company’s shareholders are concerned.
Jeremy Asher, Tower’s Chairman and Chief Executive Officer, commented: “The successful sale of Comet with its exploration acreage in the SADR represents the completion of the first stage of a portfolio review by Tower. This transaction reduces further our financial commitments and provides flexibility to implement our strategy and to reposition the Company for the future.”
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